A Tipping Point

An awful lot of bandwidth eaten up of late, all on taxes and the economy. For my own self, I’ve skipped over most of it, the intransigence is set and no minds are going to change. But for those folks that can’t be convinced of the simple fact that taxes can change behavior, work production and/or place of residence to avoid them, lets look at Britain;

Almost two-thirds of the country’s million-pound earners disappeared from Britain after the introduction of the 50p top rate of tax, figures have disclosed.

A 60 plus percent drop in those willing to get fleeced, not an insignificant number.

The figures have been seized upon by the Conservatives to claim that increasing the highest rate of tax actually led to a loss in revenues for the Government.

Wait, that can’t be right, who could possibly believe that lowering the tax rate increases tax revenues, and vice versa? What a crazy notion.

But here is the soup bone quote;

or took steps to avoid paying the new levy by reducing their taxable incomes.

And how exactly did they reduce their taxable incomes? Did they take more lawful deductions? Doubtful, rich folks usually take every legal deduction no matter what their tax rate is. Did they just not file? Hard to enjoy your wealth in the clink, don’t think so. Did they sell their business, pay off the cap gain tax when it was low, and now are just living off their dividends ala tax cheat Warren Buffet? Or, did they weigh the work involved with the taxes owed and just said , “Screw this, I will work less, make less money (thus owing less tax, less tax revenue to the state) and they can blow me”?

Oh, and it’s happening across the Channel as well. You think Obama is paying attention, you think he is aware that rich folks are bailing America under his polices and high taxation? Rich folks will be less willing to start businesses. Obama’s proposed tax increase will also act as a major disincentive for foreign entrepreneurs to invest in the US economy, build businesses and create jobs.

It is interesting to see Britain try to undo the damage by lowering their top rate (just the opposite of what Obama wants), it might work, for some. Finding that tipping point, where the actual producers and job creators are willing to stay, vs. punitive taxation which will drive them away, thus removing the one percent, that makes 17 percent, yet pays 37 percent of all the taxes. You would think they would be nicer to those that actually pay the bills.

Bruce Barltett responded to me on Twitter with this article. The tax avoidance had to do with taking income before the rates kicked in and delaying some until after they thought the rates would be repealed. Situation in Britain is a little different, however. If a British person moves overseas, they only pay taxes in the country they are living in. For Americans, they get taxed twice. We are one of the few countries that does that.

That having been said, once you get up into 40 percent marginal rate, you’re getting well up on the Laffer Curve. One thing that often gets missed in this is that you not only have the federal income tax rate, but you have the Obamacare tax, the Social Security taxes and state income taxes on top of that. So, depending on where you are, a Clinton-era 40% rate would actually be 40-50% already. I wrote about it here. The Laffer Curve peaks somewhere between 50 and 70%.

I think the Republicans have the right idea, which is to increase revenue by closing deductions and either holding the marginal rate steady or decreasing it. That keeps us on the good side of the Laffer Curve.

Balthazar, the rich are paying 40% mainly because so many people are not paying anything at all. in fact, their total taxation rate, when you count everything, has declined from about 30% to about 25% of their income. But taxation rates on everyone else have plunged. It’s as I said: if you’re going to raise revenue, it’s going to have to be from a broad base. That’s something OBama and the Republicans are running away from.

Forbes contributor Tim Worstall says the U.S. tax system makes fleeing taxes very difficult, since Americans, unlike citizens of the European Union, must file taxes regardless of their residence. Americans’ only recourse is to renounce their citizenship, and even then they must settle with the IRS before taking leave of the U.S. In contrast, a French citizen need only take the Chunnel train to London to be rid of France’s new higher taxes.

50% seems very high. Ultimately it also depends on what else is going on, in the subject country and elsewhere.

Balthazar, the rich are paying 40% mainly because so many people are not paying anything at all. in fact, their total taxation rate, when you count everything, has declined from about 30% to about 25% of their income. But taxation rates on everyone else have plunged. It’s as I said: if you’re going to raise revenue, it’s going to have to be from a broad base. That’s something OBama and the Republicans are running away from.

Also, there is analysis which suggests that when you take all taxes into account, the different income groups pay roughly about the right proportion of the tax tax take. Look specifically at the two “Shares of” columns.
Of course that analysis could be wrong, but I’ve yet to see an alternative which shows something different.

The tax avoidance had to do with taking income before the rates kicked in and delaying some until after they thought the rates would be repealed.

That is only partially true. I would like to know what percentage of one percenters have that ability/luxury, to take future earnings (monies that has not been made yet) and declare it now. Salaried folks don’t have that luxury, they must declare it when they earn it.

This assumes that the numbers are jickered only because folks are doing accounting games, it does not factor in those that just chucked it, sold their business entirely or made a conscious decision to work less, making less money so that they are either in a lower tax bracket, or stayed put but now pony up 50% of less money earned.

So, depending on where you are, a Clinton-era 40% rate would actually be 40-50% already.

Could be higher than that. Here in California, those at the highest marginal rate would be paying 54%, 39% (federal), 11% state, and 3.8% Obamacare tax.

the rich are paying 40% mainly because so many people are not paying anything at all

Which would all be addressed and fixed with a better economy, more people working, paying money in through taxes instead of drawing money out through public assistance.

when you count everything, has declined from about 30% to about 25% of their income.

Fixing the tax code, eliminating many deductions for the rich that they are taking now, they would pay a higher rate and generate more tax revenue.